Why must you focus on RevPAR to boost profit? (Hotel industry)
RevPAR is an acronym for “Revenue Per Available Room,” a critical performance statistic for hotels. Calculating your RevPAR is straightforward: calculate your average daily room rate by your occupancy rate, and voila, you have your RevPAR.
RevPAR = Average Daily Room Rate X Occupancy Rate
For example-suppose, you own a hotel with 100 rooms. You rent around 50 of those rooms each night, resulting in a 50 percent occupancy rate. If your average nightly rate is $100, your RevPAR is as follows: $100 x 0.50 = $50.
RevPAR is the revenue you get each night from all of your hotel’s rooms, not just the booked ones. This statistic gives you a decent idea of how well you’re doing at earning money, not simply booking rooms.
1. RevPAR informs you if your prices are appropriate.
Assume you’ve been charging $100 per night for your 200 guest rooms and have booked 180 of them each night. Pretty excellent. A 90% occupancy rate equates to a $90 RevPAR when multiplied by your average room charge of $100.
However, might you be earning more money? Assume you increase the average fee to $150 and get just 150 reservations the next night. That is a significant decrease in bookings, but don’t worry: let’s look at the RevPAR before panicking. With a 75% occupancy rate and an average booking price of $150, your RevPAR has increased to $112.50.
Profits have increased, and you’ve identified a far more favorable pricing point for your hotel due to RevPAR. That’s an additional $4,500 per night in a 200-room hotel, and your hotel employees will have 30 fewer rooms to clean.
2. RevPAR serves as a reminder to avoid price reductions to attract clients.
Many hotel managers believe they must undercut their competition to attract customers, but this is not always the case in this sector. Demand for hotels is very inelastic and customers are prepared to spend their money on decent accommodation. By monitoring your RevPAR, you’re likely to realize that you’re much more profitable than your rivals at a higher price point.
RevPAR ensures that you don’t overlook the forest for the trees. Rather than lowering your pricing to modestly increase your occupancy rate, that RevPAR metric will keep you laser-focused on what matters most: profitability.
3. RevPAR alerts you when you’re spending excessively.
RevPAR creates a revenue baseline that expenses cannot exceed. Total the money you spend on your hotel each day and divide it by the number of hotel rooms. Is this figure more than your RevPAR? When you fill-up your hotel, you are losing money.
By comparing your expenditures to RevPAR, you may determine when you are looking at a loss and redirect your efforts before it is too late.
4. RevPAR enables you to compare the profitability of all the room kinds in your hotel.
By identifying your least profitable rooms using RevPAR, you can direct your attention to them and devise a strategy for increasing their profitability.
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